This is the 226th evolution diary of Sky Falcon
Five "impossible triangles" in the economic and financial fields
This article is just my study and thinking, listed The company is for the convenience of analysis and explanation and does not constitute any investment advice.
The first one: There is a classic "Mundell-Krugman Impossible Triangle" in international finance. What it says is that it is impossible for a country to achieve "exchange rate stability", "independent monetary policy" and "free capital flow" at the same time.
In the early 1960s, Fleming and Mundell believed that among the three goals of free flow of capital, complete currency independence, and exchange rate stability, a government could only achieve at most two at the same time. This conclusion was called the "Mundell Triangle" by later generations.
In an article discussing the Asian financial crisis published in early 1999, Nobel Prize economist Krugman also talked about the "Mundell Triangle" problem, which he called "The eternal triangle” (eternal triangle).
Domestic scholar Yi Gang summarized it as "Mundell-Krugman impossible triangle".
At present, our country's main goal is to maintain complete currency independence and exchange rate stability, and strictly control incoming capital and outgoing capital.
Don’t underestimate this complete independence. There are more than 200 countries and regions in the world. Only three and a half are completely independent. The United States, China, Russia, France and Germany add up to half. The other countries and regions are either dependent on a certain country, or they are not in this world. No right to speak.
Although this statement is not completely accurate, it also reveals the true face of the world to a certain extent.
"The Mundell-Krugman Impossible Triangle" is a formal and authoritative formulation, and several other "Impossible Triangles" imitate and learn from it.
Second: There is also an "impossible triangle" in the macroeconomic field. This means that out of the three economic goals of “maintaining growth”, “adjusting structure” and “preventing inflation”, at most two can be achieved at the same time.
The current US dollar interest rate hike is to reduce the high inflationary pressure in the United States.
To combat inflation, in addition to raising interest rates, you can also expand production and increase supply, but this is impossible to achieve in the short term, and many industries are already oversupplied.
On the evening of April 15, the People's Bank of China announced that in order to support the development of the real economy and promote the stabilization and decline of comprehensive financing costs, it decided to lower the deposit reserve ratio of financial institutions by 0.25 on April 25, 2022. percentage points (excluding financial institutions that have implemented a 5% deposit reserve ratio).
On May 15, 2022, the People's Bank of China issued the "Notice of the People's Bank of China and the China Banking and Insurance Regulatory Commission on Issues Related to Adjusting Differentiated Housing Credit Policies" (Yinfa [2022] No. 115).
The loan interest rate adjustment on May 15 is only for new home buyers and has no impact on the loan interest rates for existing home buyers.
On May 20, 2022, the People's Bank of China authorized the National Interbank Funding Center to announce: The loan market quoted interest rate (LPR) on May 20, 2022 is: 1-year LPR is 3.7%, 5 The LPR for tenor and above is 4.45%. The above LPR is valid until the next LPR is issued.
After the central bank cut the reserve requirement ratio once, it cut interest rates twice more. Externally, it is to deal with the impact on the financial market caused by the US dollar interest rate hike and shrinkage of the balance sheet. Internally, it is to alleviate the impact of repeated epidemics on the economy and ensure that the economy operates within a reasonable range.
The U.S. dollar’s ??choice to raise interest rates can reduce inflation, but it will put pressure on economic growth. The recent continued plunge in U.S. stocks is an early reflection of concerns about economic recession.
If China chooses to cut reserve requirements and interest rates, inflation will definitely increase, but it can boost the economy and support small, medium and micro enterprises. Stimulated by these positive factors, A-share prices have rebounded significantly recently, and some companies have even nearly doubled their prices.
Thirdly, Teacher Li Pu also mentioned in "Family Wealth Management": All financial management tools, no matter how they are packaged, are consistent with the "Impossible Triangle Theory", safety, income Sex and mobility, you can only get at most two out of the three.
For investment and financial management, everyone must be thinking of low risk, high return and good liquidity. This is almost impossible to achieve.
Even the real estate industry, which is making rapid progress, cannot have all three.
Low risk and high returns are available, but the liquidity is really poor. From the time a house is listed on the Internet to the time it is sold and the money is paid, it can take as little as two or three months, or as long as one and a half years or even longer.
If a family needs money urgently, it will be difficult to cash it out immediately.
Stocks and Bitcoin have both high returns and liquidity. If it moves, it will rise tenfold, hundredfold or even a thousandfold, and you can buy and sell almost at any time, but the risk is too high, and few hearts can bear the roller coaster-like market.
Fourth: Stock investment also has the "impossible triangle" of certainty, prosperity and low valuation. It is impossible for any industry to have all three at the same time.
If the certainty is strong and the prosperity is high, then the possibility of low valuation is very small. Stock kings like Moutai currently have certainty and prosperity, so their valuations should be appropriately relaxed.
Internet platform companies such as Tencent are currently characterized by prosperity and low valuations. Because the adjustment of regulatory policies may make the certainty of growth less strong, at least in the eyes of foreign investors, the factors affecting its certainty have not been completely eliminated.
Investors who are more aggressive in style pay more attention to prosperity and certainty, and do not attach much importance to valuation.
In the three-year structural bull market from 2019 to 2021, many track stocks with high prosperity and certainty have experienced equally astonishing growth despite their high valuations.
But in 2022, the style has changed. Many track stocks with high valuations have plummeted to half or even lower, while infrastructure, coal and banks with traditional low valuations have not increased much. It is small and brings huge returns to deep value investors. This is the turn of the tide.
Fifth: Choosing a company also follows an "impossible triangle" of growth, cash flow and profit.
Investors will all have a question, what kind of good company is worth buying?
For growth-style companies, investors often put the company's growth first and ignore cash flow and profits.
Generally, such industries are in the early stage. As long as the growth rate is fast enough, cash flow can be obtained through market financing. Once this type of style succeeds, the returns will be staggering. If the company's growth performance does not meet expectations, the stock price may suffer a loss.
This was the case for early Internet companies. They began to need to continuously burn money to gain territory.
Advertising bombardment, large subsidies to users, high-intensity R&D investment, and seizing market share at the expense of losses. In addition, the profit model is not very clear. The cash flow and profits of this type of enterprise are often difficult to see.
If you choose a company with good cash flow and profits, its growth potential may be average, represented by infrastructure, coal and banking companies.
It is very unlikely to find a company that has all three.
If you want to wear the crown, you must bear its weight. If you hold a rose in your hand, you will bear its wounds. You can't have your cake and eat it too. The wisdom of ancient sages is equally applicable to today's treacherous financial market.
This article is just my study and thinking. The companies listed are for the convenience of analysis and explanation, and do not constitute any investment advice.